HSA-friendly health plans in 2027: How tax breaks compare with higher deductibles

Healthcare affordability remained a major part of the cost-of-living debate in the midterm election.

It is still unclear how a new Congress may try to tackle that issue. Meanwhile, as workers pick their 2027 health coverage, millions are facing a more immediate choice: whether to enroll in a plan that allows contributions to a health savings account, or HSA.

The key tradeoff is whether the tax benefits and lower premiums of an HSA-eligible plan are worth the higher deductible and possible out-of-pocket expenses.

HSAs offer a 'triple tax advantage'

One of the biggest draws of an HSA is its tax treatment.

“You have a triple tax advantage,” said Kalei Cadinha-Pua'a, vice chair and CEO of Honolulu-based Cadinha & Co., which ranked No. 21 on this year's CNBC Financial Advisor 100 list.

Employer and employee contributions are made before taxes, the money can grow without being taxed while it stays in the account, and qualified medical withdrawals are tax-free.

Financial advisers say many workers also miss another possible tax break. HSA contributions made through an employer's Section 125 cafeteria plan are generally exempt from Social Security and Medicare taxes.

That can make payroll contributions more tax-efficient than contributing separately and taking a deduction later, said certified financial planner and enrolled agent Andy Panko, founder of Tenon Financial in Metuchen, New Jersey.

Workers should find out how their employer handles HSA contributions and whether the Social Security and Medicare tax savings apply.

Someone who contributes to an HSA outside payroll may still be able to claim an eligible federal tax deduction, but usually will not receive the Social Security and Medicare tax break.

High-deductible health plans are not the right fit for everyone

HSAs are usually paired with high-deductible health plans, so consumers generally must be enrolled in such a plan to contribute to the account.

These plans may carry lower premiums than other options, but workers can face larger costs later when they need care.

For 2027, the IRS says an HSA-eligible plan must generally have a deductible of at least $1,750 for individual coverage or $3,500 for family coverage. Annual out-of-pocket expenses, not including premiums, cannot exceed $8,700 for individual coverage or $17,400 for family coverage.

More employers are offering health plans with an HSA option. Among U.S. health plan sponsors with at least 50 employees, 63% offer a high-deductible plan that qualifies for an HSA, according to a recent Marsh employer survey. More than a third, or 37%, of employees covered by an employer health plan are enrolled in an HSA-eligible plan.

“Employers often offer an HSA plan as a low-cost option, and then because of the higher deductible and the overall cost-sharing structure, these plans are typically costing less for the employer as well as the employee,” said Frank Easley, senior vice president of Aon Health Solutions.

Tax advantages alone do not make an HSA-eligible plan the best choice. Financial advisers say workers should weigh premiums, deductibles and out-of-pocket maximums against expected healthcare needs before signing up.

They should also consider any employer HSA contributions and how much cash they have available to handle an unexpected medical bill before the deductible is met, said Nathan Lochstampfor, CFP, an associate consultant at Harrisburg, Pennsylvania-based Conrad Siegel Investment Advisors, which is ranked No. 45 on CNBC's Financial Advisor 100 for 2026.

If someone cannot afford the deductible of a high-deductible plan, it may make more sense to choose a plan with higher premiums and lower out-of-pocket costs, he said.

Lochstampfor suggests clients ask themselves: “If I got in a car accident going home from work, could I afford that deductible? Or would I be better off maybe paying a little bit of higher premiums until I build up those cash reserves?”

How to save and invest through an HSA

HSA contribution limits for 2027 are $4,500 for individuals and $9,000 for families. People age 55 and older can make an additional $1,000 catch-up contribution.

An HSA can be used now or later to pay for qualified medical expenses. Any unused money generally rolls over from year to year, and earnings are not taxed while they remain in the account. HSA balances can also be invested. As of midyear, 11% of HSA accounts held invested assets, according to Devenir, an HSA investment firm.

Financial advisers say the ideal approach is to keep some money in cash for near-term needs and invest the rest for retirement.

“If you have a long time and you can begin to develop a strategy for savings, it can really work and benefit you in the future when you don't have that earned income to pay for your healthcare needs,” Cadinha-Pua'a said.

Some HSA holders pay current medical bills out of pocket and let the money in the account remain invested so it can grow tax-free. They can then reimburse themselves years later for those expenses. Certain rules apply, including that the expense must be qualified and incurred after the HSA was opened.

That strategy can be effective, but it depends on careful recordkeeping.

The IRS wants to ensure expenses are not counted twice. Account holders need records showing that HSA distributions used to pay or reimburse medical expenses were not also claimed as an itemized deduction.

“Be really honest with yourself,” Cadinha-Pua'a said. “Are you a good record keeper?”

She recommends saving digital copies of receipts, bills and proof of payment, keeping them in an electronic folder and backing that folder up to the cloud. That can help preserve documentation if a computer fails or if the account holder needs to prove a reimbursement years later.